Revisiting Your Plan Halfway to Retirement
Written by Preet Banerjee
Wednesday, December 12th, 2018
You started saving for retirement over 10 years ago, but you're also more than 10 years away from retiring. Is it a good time to ramp up the savings?
The Investing Warm Up Is Over
A lot of people are encouraged to get on the treadmill of saving and investing early, but because you may not have had a lot of cash at your disposal when you were young, you probably started that treadmill at a slow speed. You might have started with biweekly contributions of $50, for instance, but you stuck to it. And now your portfolio might be around $15,000-$20,000.
You've been slowly making progress in other financial areas of your life, but now you're starting to wonder if your financial trajectory is pointed high enough for you to retire when you'd like. Your income may be higher than ever before, so maybe it's a good time to dial up your speed on that treadmill.
Keep an Eye on Lifestyle Inflation
There may have been days of mac 'n' cheese when you were just starting out on your own, but the money pressure probably started to ease as your income increased. Now you may be going to fancier restaurants. Maybe you order food through an app for home delivery multiple times a week.
Can you make 20% of your income your new long-term savings goal? You might be surprised how easy that is once you see how much fat you can trim from your spending.
Role Reversal with Your Parents
One of the reasons you might need to increase your savings is that as your parents age, there may come a time when you'll have to start helping them financially. People are living longer, and that can often lead to more financial strain for them, and possibly you. Assisted living, nursing care, and other unique expenses of aging can add up in a hurry.
Bigger Stakes if You Lose Your Job
You'll also want a bigger buffer in case you get laid off from your job. Later in life, it can be harder to jump right into a new job when you've been used to earning a higher income and the industry where your expertise was valued has had a major shift. You might sleep better at night knowing that you can tap into your long-term savings once your emergency fund is tapped, because it might be over a year before you can retrain, upgrade or find a job with an income you're accustomed to.
Second Half Opportunities
If the end of your mortgage is in sight, you can direct the bulk of the money that was going to your mortgage payments to retirement savings and probably still have a financial buffer.
It's also a good idea to revisit your capacity and tolerance for risk. As your circumstances change, your portfolio might need to change, too. And as you get closer to retirement, you're more likely to want your investments to be conservative.
Revisit Your Plan Regularly
The best way to figure out the challenges and opportunities, and whether you're on track for the future, is to have a financial plan that you monitor and adjust as life happens.